New York Advisory Opinion TSB-A-86 (6)I: Can a nonresident sales manager, whose compensation is based on the sales volume of the salespeople he supervises (not his own personal sales), choose to allocate his New York income based on sales volume rather than days worked in New York?

Plain-English summary

Richard C. Thompson, a Connecticut resident, worked as an advertising sales manager for a business magazine. His total compensation was a monthly draw against commissions, but those commissions were based on net advertising revenues generated by worldwide sales made by company salespeople and independent sales representatives whom he supervised - not on sales Thompson personally made. He asked whether he could choose to allocate his compensation to New York either by "days in, days out" of New York, or by the sales made within versus outside New York.

The Department explained there are two different regulatory allocation methods for nonresidents, and which one applies depends on whose sales volume drives the compensation. Regulation 20 NYCRR 131.17 allocates a nonresident traveling salesman's or agent's income by the ratio of business volume HE personally transacts in New York to his total business volume - but it applies only "[i]f the commissions ... depend directly upon the volume of business transacted by him." Regulation 20 NYCRR 131.18(a) instead allocates a nonresident employee's compensation by the ratio of working days employed in New York to total working days, and applies to employees not covered by § 131.17 - excluding nonworking days (weekends, holidays, illness, vacation, leave) from the calculation, and requiring that any out-of-state days claimed reflect genuine necessity (not mere convenience) for the employer's business.

Because Thompson's compensation depended on the sales volume generated by the people he supervised, not on sales he personally transacted, the Department held (citing Dalenz v. State Tax Commission) that regulation 131.17 simply doesn't apply to him - it's reserved for salespeople whose own personal sales drive their own pay. Since his compensation instead depended on where he performed his supervisory services, he was required to use the days-worked method under regulation 131.18. The Department was explicit that Thompson had no choice in the matter: "Petitioner is not allowed any option regarding the method of allocation of his income."

What this means for you

Sales managers and supervisors paid on their team's performance

If your compensation is based on the sales volume generated by people you supervise - rather than sales you personally make - you cannot use the volume-of-business allocation method (regulation 131.17); you must allocate your New York income based on the days you actually worked within versus outside New York (regulation 131.18), and only days reflecting genuine business necessity outside New York count toward the non-New-York side.

Individual salespeople whose pay depends on their own sales volume

This opinion doesn't change your situation - regulation 131.17's volume-of-business allocation remains available when your OWN commissions depend directly on your OWN sales volume, as opposed to a team you supervise.

Employers and payroll/tax staff determining which allocation rule applies to a nonresident employee

Look at whose sales volume actually drives the employee's compensation, not just their job title. A "sales manager" whose pay tracks a team's collective results is treated like any other nonresident employee under the days-worked rule (131.18), while a traveling salesman or agent whose own commissions depend on their personal sales volume uses the volume-of-business rule (131.17) instead.

Common questions

Q: I'm a nonresident sales manager - can I choose whether to allocate my New York income by days worked or by sales volume?
A: No, if your compensation depends on your team's sales volume rather than your own personal sales. The Department held that regulation 131.17 (volume-of-business allocation) only applies when the taxpayer's OWN compensation depends directly on business HE personally transacts - since Thompson's pay depended on his supervised salespeople's volume, he had to use the days-worked method (131.18) with no option to choose otherwise.

Q: What counts as a "working day" versus a "nonworking day" for the days-worked allocation?
A: Regulation 131.18 excludes nonworking days from the calculation entirely - including Saturdays, Sundays, holidays, days absent due to illness or personal injury, vacation, and leave with or without pay. Only actual working days count on either side of the ratio.

Q: Can I claim days worked outside New York just because it was more convenient to work from there?
A: No. Regulation 131.18 requires that any allowance for days worked outside New York be based on services that, of necessity (not mere convenience), obligated you to out-of-state duties for your employer.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a86_6i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (6) I
Income Tax
May 27, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I860203B

On February 3, 1986, a Petition for Advisory Opinion was received from Richard C.
Thompson, 4265 Congress Street, Fairfield, Connecticut 06430.
The issue raised is the correct method of allocation of compensation received by Petitioner.
Petitioner, a nonresident of the State of New York, was an advertising sales manager for a
business magazine. His total compensation was based upon net advertising revenues generated by
worldwide sales made by company sales people and autonomous sales representatives all of whom
were supervised by Petitioner. Petitioner's compensation was in the form of a monthly draw against
commissions earned on worldwide sales. Petitioner questions whether he has the option of allocating
his compensation on the basis of "days in, days out" of New York State or on the basis of sales made
within and without New York State.
Section 131.17 of the personal income tax regulations provides that "[I]f the commissions
for sales made or other compensation for services performed by a nonresident traveling salesman,
agent or other employee depend directly upon the volume of business transacted by him, his items
of income, gain, loss and deduction (other than deductions entering into the New York itemized
deduction) derived from or connected with New York State sources include that proportion of the
net amount of such items attributable to such business which the volume of business transacted by
him within New York State bears to the total volume of business transacted by him within and
without New York State." (emphasis added). 20 NYCRR 131.17.
Section 131.18(a) of the personal income tax regulations provides, in part, that "[I]f a
nonresident employee (including corporate officers, but excluding employees provided for in section
131.17 of this Part) performs services for his employer both within and without New York State, his
income derived from New York State sources includes that proportion of his total compensation for
services rendered as an employee which the total number of working days employed within New
York State bears to the total number of working days employed both within and without New York
State. The items of gain, loss and deduction (other than deductions entering into the New York
itemized deduction) of the employee attributable to his employment, derived from or connected with
New York sources, are similarly determined. However, any allowance claimed for days worked
outside New York State must be based upon the performance of services which of necessity, as
distinguished from convenience, obligate the employee to out-of-state duties in the service of his
employer. In making the allocation provided for in this section, no account is taken of nonworking
days, including Saturdays, Sundays, holidays, days of absence because of illness or personal injury,
vacation, or leave with or without pay." 20 NYCRR 131.18.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86 (6) I
Income Tax
May 27, 1986

Petitioner's compensation is based upon the amount of sales made by the individuals under
his supervision. Thus, his compensation depends directly upon the volume of business transacted
by other individuals. Inasmuch as Petitioner's compensation does not depend directly upon the
volume of business transacted by him, the provisions of regulation section 131.17 do not apply for
purposes of the allocation of Petitioner's compensation. Dalenz v. State Tax Commission 9 A.D. 2d
599 (1959).
Petitioner's compensation must be allocated with reference to where he performed his
services for his employer. Accordingly, Petitioner is required to allocate his compensation pursuant
to the rules set forth in regulation section 131.18 based upon days worked within and without New
York State. Petitioner is not allowed any option regarding the method of allocation of his income.

DATED: May 27, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.